Changing Airport Economics

ACI-NA president on the stimulus, AMT, financial reserves, and a changing model.

At the Airports Council International-North America’s recent finance conference in Seattle (see page 10), much of the discussion centered around airport/airline economics, the recent federal stimulus package, and funding future improvements in a tight credit environment. Following the meeting, AIRPORT BUSINESS conducted a follow-up interview with ACI-NA president Greg Principato for his thoughts on the economics of the U.S. airport system today. Following are edited excerpts ...

AIRPORT BUSINESS: What are your thoughts on the impact of the federal stimulus package on airports?

Principato: We’re pleased that the stimulus included $1.1 billion in AIP [Airport Improvement Program] money -— a lot of that has already been allocated. It’s out there being put to work, creating jobs. Somebody just told me that the project in Tampa that’s being funded by that is creating 300 jobs. I think it’s having the desired effect. The airports office over there [at FAA] is really good at getting that money out the door.

As you know, we’re part of a worldwide organization, and a number of our counterparts in other parts of world are very impressed that the U.S. Congress and Administration included airports in the stimulus. They’re having a little tougher time getting their governments interested in money for airports.

The other billion dollars for buying the security equipment is going to have a big impact.

The overlooked part of it, which shouldn’t be overlooked, is the alternative minimum tax [AMT]. ACI worked really hard on that — for years. The Metropolitan Washington Airports Authority, Nashville, Philadelphia, have all been able to go to market and get some things financed that they hadn’t been able to before. That’s really huge.

AB: Can you expand on how much that AMT provision means for airports?

Principato: Airports of all sizes, really, are looking to use that provision to go to market, where they weren’t able to get it done before because of the AMT provision. The problem we had, especially the second half of last year, was the market cratered. You could sell stuff, but it couldn’t be encumbered by anything, and you’d have to pay a pretty high rate. Something like the AMT being attached just made it seem a little too complicated and risky at the time.

Getting that label removed has made a big difference in thawing out the credit markets to some degree. There’s still a way to go, obviously; there are things impacting the credit markets and the economy that go way beyond anything that happens at airports. But it has made a difference.

AB: At the recent ACI-NA economics and finance conference in Seattle, two top officials from Alaska Airlines were commenting on how the cost per enplanement at U.S. airports has jumped more than 40 percent since 2002. They suggest that airports aren’t controlling their costs as much as the airlines. Your reaction?

Principato: I think that’s largely creative accounting; obviously, when your passenger levels go down, your cost per enplanement is going to go up. There are airports around the country laying people off. I haven’t talked to a single airport that’s not cutting its budget. Everything from layoffs to cutting budgets, they’re cancelling or postponing projects. It might be a nice propaganda point for them but it doesn’t really hold up.

AB: A rep from Delta stated that U.S. ‘airports have accumulated significant, unrestricted financial assets in 2007 totaling $27 billion, up from $23 billion in 2001.’ How important is it that airports maintain such reserves?

Principato: A couple of thoughts: Well-run organizations have cash, which may be one reason the airlines don’t recognize it. Number two, a lot of times those reserves are held because they know it will result in a better bond rating for bond agreements. If you have cash reserves, you can get a better cost of capital, which lowers the cost to the airlines, by the way.

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